To hear most politicians, journalists, businesspersons, and parents, the costs of college are "out of control." Variations on this theme include allegations that higher education "is the next health care industry," or that "these (tuition) increases just can’t keep going up," or that the professors and the presidents "just don’t get it." The latter remark conveys a notion that the (presumably excessive) cost and/or price increases in colleges and universities are not really necessary, but reveal some combination of greed, selfishness, incompetence, and all around obtuseness.

A 1997 survey commissioned by the American Council on Education concluded that: "The public worries a great deal about the price of attending college, believes it is too expensive, and thinks the price can be brought down without affecting academic quality." The survey further found that: "The public has no idea of why college prices increase...[and thinks] that college leaders are indifferent to their concerns about the price of attending college." (Ikenberry and Hartle, 1998; Hartle, 1998.)

Along with the rhetoric about "out of control costs" are references to overpaid and underworked professors, administrative bloat, institutions trying to be "all things to all people," presidents and trustees unwilling or unable to manage (for example, able to add but never to subtract or diminish), and institutions unable to change. A veritable shelf of books has been written critical of the academy, attacking professors and administrators for waste and profligacy as well as for softness and political correctness. National news magazines and television specials have featured (and perhaps helped to create) a widely perceived "crisis in college costs" (Footlick, 1998). The Congress in 1997 established the National Commission on the Cost of Higher Education (National Commission, 1998) and even sent the commissioners back to reconsider when it appeared that the supposedly independent entity might issue a final report that was insufficiently critical of colleges and universities and of the profligacy of which the sponsors of the legislation knew them to be guilty.

A more scholarly literature appeared in the 1990s (Olson, 1997), seeking in part to better differentiate between those costs (and especially those cost increases) that are externally imposed, unavoidable, or otherwise justifiable, or that clearly enhanced output, from those cost increases that are discretionary, avoidable, and generally unrelated to the enhancement of the product or service. Leslie and Rhodes (1995) described the latter costs as "internally pathological." Massy (1991, 1996) wrote of "the administrative lattice" and the "accretion of unnecessary tasks" to describe talented people working hard to find problems that justify their (and additional) jobs, but with little or no clear link to real organizational outputs or products. He also wrote of "output creep" to describe the tendency of faculty to produce what they want, as opposed to what the sources of revenue (whether student, parent, government other client) want. Gumport and Pusser (1995) wrote of the "additive explanation" to account for positions (and costs) whose functions are maintaining and resolving conflicts within the organization, rather than directly contributing to organizational product. Zemsky (Zemsky et al, 1999) found evidence to support their contention that higher tuitions at the selective, "name brand" colleges and universities created "margins" for the benefit not of the students (nor presumably of their parents) but of the faculty.

At the same time, faculty and administrators of very many colleges and universities feel as though they have been living amid almost perpetual financial challenges, constantly cutting, reallocating, downsizing, outsourcing, and chasing new revenues. More than a few institutions have cut costs so deeply they have lost many of their full-time faculty—and arguably a good deal of their former quality. Conventional wisdom not withstanding, many colleges have also changed profoundly—as from a residential Roman Catholic liberal arts college for young women to a secular, co-educational college for part-time adults seeking career education in business or the health professions. Entire public systems have lost real resources (mainly full time faculty and support staff) as well as the ability to maintain library and equipment purchases, even as they have invested in new fields and new technologies. Net tuition revenue for many private colleges has been rising more slowly than their costs due to unavoidable increases in unrestricted financial aid, or tuition discounts, requiring (on top of the steep increases in tuition, or "sticker prices") more and more cuts in personnel and deferred maintenance. The National Commission on the Cost of Higher Education, far from finding the Congressionally anticipated "smoking gun" of widespread profligacy, reported merely that it was "…convinced that academic institutions have done a lot to control costs but they must achieve more in the way of cost containment and productivity improvement." (National Commission, 1998, p. 15.)

Also at the same time, students and parents are increasingly clamoring to get into the highest-priced colleges and universities, which is the principal signal (for those who believe in markets) of the worth of those colleges and universities to parent and student alike. Finally, in spite of tuition increases, it can still be said that any student (at least one who is of traditional college-age, who is at all academically able, and who is willing to borrow and/or work part time) can get into some—and probably several--colleges or universities regardless of the financial status of their family.

Why such a disconnect? How can it be that so much of the American public, along with many scholars and "insiders," seem to believe that higher educational costs are "out of control," or at least greatly excessive, while most (although not all) faculty and very many administrators believe at least their part of the enterprise to be woefully underfunded, efficient to the point of compromising academic values, and themselves to be working harder than ever? This chapter examines higher educational costs and prices and some of the criticisms surrounding American colleges and universities in search of an explanation of this apparent disconnect, and some answer to the question of "how like a business" the American public can expect its universities to be.

The Several Meanings of "College Cost"

Cost of Instruction, or Production Cost. The National Commission on the Cost of College (1998) differentiated among four quite different meanings of the term "college costs." The first is what the Commission called "production costs." These are the underlying costs of instruction: a function of faculty-student and staff-student ratios, average salaries and benefits (which are partly a function of the ratio of regular full-time, to adjunct or other part-time, staff), and other operating and capital costs, or at least those attributable to undergraduate instruction. (It may be significant, although curious, that it is undergraduate costs, which are thought to drive undergraduate tuition, that seem to be the sole source of the political and popular interest in the allegedly "out of control" costs or prices of higher education. The costs of graduate and advanced professional education, while a legitimate issue and arguably too high for a number of reasons, may be so inextricably bound together with the costs of research and scholarship as to make these costs much more difficult to analyze. But it is still a puzzle why the journalistic and political attention seems almost exclusively devoted to the costs and prices of undergraduate education, particularly when there is probably more clear waste elsewhere.)

The faculty- student ratios, in turn, are mainly a function of prevailing class size (reflecting in part the richness or leanness of the curriculum) and the average teaching load (reflecting the orientation of the institution either to research and scholarship or to teaching). The staff-student ratio is a function of the richness or leanness of such support functions as: (a) academic support, such as computing, advising, tutoring, and library services; (b) student affairs, such as counseling, recreation, and student activities; and (c) the administrative and institutional support functions of admissions, financial aid, institutional relations, and general administration attributable to undergraduate education. This is the construct of "cost" that drives all of the others (most notably the tuition cost, or price) and is the cost that is presumably the most amenable to real control-—and that ought therefore to be the principal object of scrutiny and criticism (if criticism be due). It is also, however, a construct for which we have too little truly useful data at complex universities.

Whatever assumptions and conventions, the real spread, or variance, in per- student costs among institutions is very great. In large part this reflects the expected differences between:

• sectors (e.g. research universities, comprehensive colleges, and two-year colleges);

• levels of instruction (lower division, upper division, and graduate or advanced professional); and

• fields or disciplines (especially between laboratory and equipment-intensive science and engineering fields, and most of the humanities and social sciences; see Stringer, 1999, p. 18).

The fact is, undergraduates in America can be taught at very low cost--especially if the faculty are paid very little, go largely without benefits, are given heavy teaching loads, are generally absolved from expectations of research, institutional governance, and academic or community service, and given minimal support in the way of facilities or professional staff. Or, they can be taught at very high cost—especially if the college has the resources to compete for the best faculty, both with good compensation and with the perquisites of low teaching loads and support for research, and also with a bright and diverse student body, "purchased," in part, with generous financial aid, abundant library and computing facilities, and a rich array of student activities and other support services (Clotfelter, 1997). These colleges and universities at the "high cost" end of this instructional cost spread would not admit to costing more to produce the same output, but to be producing a different—and fundamentally more costly—output, or product. Measured by the learning acquired, the developmental advancements in character and leadership abilities, and by other values evidently given to the student (in part attested to by their voluntary philanthropy as alumni), as well as the great social benefit purchased by the very extensive financial assistance (and partially responsible for the high cost of the tuition discounts), the "high priced" colleges and universities would readily admit to being more costly, but not necessarily to being any less efficient or productive.

With all of these caveats, particularly against attributing too much regarding "appropriateness" or "excessiveness" from the available data on average per-student instructional cost by certain gross spending categories, Table 1 shows some of the data, compiled by Gordon Winston (1998), that were used by the National Commission on the Cost of Higher Education, which completed its work in 1998.

Table 1

Average Per-Student Spending in 1994-95
 

Public			Private
All Public	Public Research	Compre-hensive	All Private	Private Research	Liberal Arts
$9919	$13,448	$9933	$14,172	$32,014	$15,425

Source: NCES Condition of Education 1999, Supplemental Table 40-2 http://nces.ed.gov/pubs99/condition99/SupTables/supp-table-40-2.html

"out-of-control" costs of production--as long as one accepts that unit costs in a labor intensive industry like higher education are almost bound to increase somewhat in real terms—that is, at a rate of increase something in excess of the prevailing rate of inflation.

A more limited time series, but with refinements in the IPEDS data, was used by the National Commission (1988, Figure 2, p. 6 and Exhibits 1-3a and 1-5, pp. 166 and 168) to illustrate the changing proportion of underlying instructional costs that are borne by tuition. The Commission reported eight year increases in "instructional costs," in current dollars, from 1987 to 1996 of $7922 to $12,416 in the public sector, and from $10,911 to $18,387 in the private sector. Converted to constant 1995-96 dollars (by the Consumer Price Index), this represents for the public sector an eight-year increase of about 12.5 percent, or average real dollar annual increases of some 1.5 percent. Again, the data are less than one might hope for. But again, they do not seem to support a notion of "out-of-control" instructional costs, particularly in the public sector.

Tuition. The second—and probably most cited, scrutinized, and criticized--construct of "college cost" pointed out by the National Commission is tuition, or that portion of production costs passed on to students and parents as the sticker or nominal price. This is what the press gets most excited about, and what is unambiguously and rapidly rising. It is tuition—or perhaps even more so the annual increases in the "posted," or "sticker," or "nominal" tuition--that is probably at the root of most allegations of "out of control costs." Average annual tuition increases for public and private colleges, as compiled annually by the College Board, increased well over 600 percent in the 25 year period from 1974-75 through 1999-00, with annual tuition increases in the private sector averaging some 15 percent in the last half of the 1980s.

Expressing these increases in constant dollars eliminates the misleading (and inflammatory) effect of general inflation. As shown in Table 3, the average annual real (constant 1999 dollars) tuition increases were still quite considerable for the private sector in the last half of the 1980s averaging nearly 9 percent annually, and in the

Table 3

Average Tuition and Tuition Increases,
Public and Private 4-Year Sectors,
1974-75 to 1999-00 [Constant 1999 Dollars]

Source: College Board (1999) Trends in College Pricing, From Table 5, p. 7.

public sector from the mid 1980s through the mid 1990s, averaging almost 6 percent. But otherwise in this 25 year period, the average annual increases were mainly in the range of two to three percent, which is about what one would expect in an economic sector in which unit cost and price increases reflect essentially the average increases in total compensation—which in turn approximates the average real increase in total economic output. And if we factor in the very considerable withdrawal of per-student state aid in the public sector, along with the considerable increase in price discounting in the private sector—both of which contributed to the increases in tuition without contributing any net revenue toward operating expenses--the data again do not support the notion of excessive increases in real operating expenditures (with the exception mainly of some private colleges and universities in the latter half of the 1980s.)

Tuitions, of course, differ from (that is, are less than) the underlying instructional costs according to varying levels of non-tuition revenue: mainly state tax support in the public sector, and endowment earning and current giving in the private sector. It is not the case, however (at least not in the private sector) that the more per-student non-tuition revenue, the lower the tuition is likely to be—which would be a reasonable expectation under the condition of a fixed production function or unvarying instructional costs, as in an otherwise price-competitive, goods-producing enterprise. Instead, the more the available non-tuition revenue, the higher the tuition is apt to be--and of course the very much higher the per-student instructional costs are likely to be. Consumers--meaning both students and parents—can then perceive themselves getting even more for their already high tuition dollars. And those advocating for the most costly (and pricey) private institutions, can point out that tuition, however high in the estimate of some observers, and however rapidly increasing, still constitutes only a portion of total undergraduate instructional costs, the other portion being covered by philanthropy, either in the form of return on past giving (endowment) or in current income from annual giving.

Thus, the billions of dollars in aggregate endowment and the hundreds of millions in aggregate current giving in the priciest of the private colleges and universities is, for the most part, going not to cover the underlying essential costs of instruction and diminishing the amount that must then be covered by tuition, but is going toward a more expensive (but presumably better) undergraduate education by purchasing:

• lower student-faculty ratios, lower teaching loads, and better salaries, resulting in the best faculty, who have more time both for their scholarship (and the national prestige that this brings to the institution) and perhaps even for their (relatively few) students;

• an abundance of non-faculty professional staff (for the support of learning and tutorial centers, recreation, student activities, career counseling, etc.);
• more and better physical plant (e.g. computer labs, gymnasia, theatres, art galleries, student meeting spaces, nicely landscaped grounds); and
• the attractiveness and diversity of fellow students that comes about through costly financial aid.

Total Expenses. A third construction of the "costs" of higher education is the total package of all parent- and student-borne expenses, including not just tuition, but all other fees and all costs of student living, including lodging, food, transportation, and all other expenses. Under this construct, the non-tuition costs—that is, the costs of student living, books, transportation, and all other reasonable expenses, most or all of which are not under the control of any college or university—vary widely according to whether the student is living at home, in a dormitory or with friends or a partner in an apartment, and also according to necessary transportation expenses and the chosen standard of living. Table 4 shows some estimated "other-than-tuition expenses" as percentages of the estimated total expenses for a year in college according the College Board. These may range from 34 percent of total expenses for a year in residence at an average private college, to 69 percent for a residential experience at a public college, and 62 percent at a public college living at home. In fact, since these College Board numbers are from college-reported averages, the actual range is probably much greater. But the point is that

dwelling only on tuition seriously underestimate the expense burden that must be met by parents and students, especially in public "low tuition" colleges, and even in situations where the low public tuition is combined with living at home.

Putting a range of these student living and "other" expenses together not with the published average tuitions, but with "modeled," or "reasonable estimates" of high and low tuitions in both the public and the private sectors yields the range of possible total expenses for an undergraduate academic year in the US in 1998-99, shown in Table 5.

Net Expenses. However, the real impact on student and family college-going behavior may be best indicated by yet a fourth construction of "college costs," which is the total costs or expenses borne by students and families net of financial assistance. The National Commission’s information on total and net price of attendance is shown in Table 6. These data are back to the published averages, rather than "modeled ranges" used for Table 5, and as such illuminate very little because the discounts vary so greatly according to the calculated "family financial need" (or its converse, the calculated "expected family contribution.") These calculations, in turn, depend on current income, certain assets, and other family obligations. But Table 6 does show that:

• Total available financial aid (loans and work study as well as grants) has substantially cushioned the increase in total expenses for public and private four-year colleges.

• The greatest percentage increase in college expense net of financial assistance of all kinds has been in the public sector, and especially in community colleges.

• The least percentage increase in net expense has been (on average) in the four year private sector.

Part of the reason that the public (meaning politicians, journalists, and citizens generally) has not been as concerned about the enormous variation in tuitions or total expenses borne by students and/or parents, as noted above, is because the focus has often been on not the tuition nor the total expense itself, but only on the annual rate of increase in these numbers. The reason for this seems to be that the annual rate of increase can so easily be compared with another annual rate of cost or expense increase, which is the annual rate of inflation, or the current yearly rise in the Consumer Price Index, or CPI. The typical headline, usually following the announcement by the College Board of the results of its annual survey of college costs (College Board 1999a) reads, often in front page bold headlines, "College Costs Again Rise Faster than the Cost of Living!" or "College Cost Increases Exceed Rate of Inflation for the Fourteenth Year in a Row!"

It seems to make little difference to the headline writers, or to the politicians or the rest of higher education cost critics that the rate of inflation is merely an average (weighted) of lots of price increases, and that, as in any average, roughly one-half of all the elements that have been "averaged" must perforce lie above (and another one-half lie below) that calculated average. Nor does it seem to matter that higher education, as a labor intensive industry, has relative few opportunities for large scale substitution of capital for labor (which is not to be confused with the large scale addition of capital to labor that more commonly describes the application of technology to college teaching), and will almost inevitably feature above-average cost/price increases. (This is fundamentally unlike most manufacturing, which can substitute capital for labor, reaping cost-side productivity increases, and holding both cost and price increases below the economy-wide average.) It would, in fact, be unusual if higher education in general were not in the "above average" half of the cost/price distribution. But as Footlick (1998) noted in "The Holy Cow! Story: How the News Media Cover College Costs," such explanations are not the stuff of headlines or political speeches.

It is true that some colleges and universities in some years have managed to hold unit costs increases below the rate of increase of costs and prices in the general economy, evidencing an apparent gain in "productivity." However, the occasion is generally either (in the public sector) mandatory cuts forced by the governor and/or legislature, or (in the private sector) falling demand and net tuition revenue. The "productivity increase" that is thus reflected in below average increases in unit costs may have been made possible by a reduction in the number of faculty and staff, and/or by a shift from full-time faculty to part-time, inexpensive, adjunct faculty, and/or by a reduction in student services. Sill, this is a genuine productivity increase only as long as there is no commensurate decline in the output, or the quality of the product. This is exceedingly difficult to prove one way or the other. But many of us believe such a diminution of quality to be widespread, and thus to have considerably blunted the alleged productivity gains of many of the per-student cost reductions of recent years.

The fixation by the public on the rate of increase of tuitions rather than the rate of increase in the underlying costs of instruction is particularly significant in the public sector when a state can magnify even a modest underlying instructional cost increase by a very large tuition increase that is mainly a replacement for a commensurate withdrawal of public tax revenue, and is not at all indicative of what may be happening to the underlying costs of instruction. Data comparing different states and sectors are difficult to compile due to inter-state differences in the rates of enrollment increases, faculty compensation, and expenditures earmarked for purposes having little bearing on undergraduate instruction, not to mention the above-mentioned difficulty of comparing changes in quality, or true outputs. However, many states in the past decade have almost certainly decreased the real per-student undergraduate spending, at least as measured by real full-time faculty and professional staff per student, even though the resulting below-average increase in per-student instructional costs has frequently been accompanied by above-average tuition increases as states have shifted the burden of cost from taxpayers to students and parents.

Although the rate of tuition increases get the headlines, it is more the amount of increase in the stated tuition or "sticker price" that may generates an enrollment response, particularly in the public sector, where a decline in enrollment may be politically volatile. The question posed--the price elasticity of demand for higher education is the anticipated percentage enrollment decline that can be expected from a tuition increase of, say, $100 or $1000? This question has been the object of both time series and cross sectional econometric analysis that has consistently shown a small response: in the range of one to two percent for each $100 rise in tuition (Leslie and Brinkman, 1989; Kane, 1995; McPherson and Schapiro, 1998; and Heller, 1997, 1999). However, we know little about how this enrollment response may be concentrated in certain college sectors or certain student/family attributes except that the response seems to be minimal among upper-middle and upper income students, upperclassmen (as opposed to first-time or "about to enroll" freshmen), and among the academically successful and ambitious. Conversely, we can expect there to be a measurable "enrollment response" to a tuition increase among low income, academically unsuccessful and/or ambivalent youth, and among part-time students. This actual nature of this enrollment response, however, can vary: from not applying at all or dropping out for a semester of work, to "dropping down" to a lower-cost college near home, or to dropping out altogether never to return.
 
 

Out of Control Costs: Variations on the Charge

To the extent that higher educational costs can legitimately be deemed to be a public policy issue, there seem to be five rather different "charges" that can be aimed at higher education's leadership (broadly defined to include both campus and system CEOs, governing boards, deans and other academic administrators, faculty leaders, and elected officials). The specification or attribution of the "charge" is important both for understanding cause and for assigning blame--for if there can be no "blame," there will likely be no amelioration of the problem.

1. Profligacy or Wastefulness: the charge that colleges and universities are wasteful: that what they do could be done the same (and in generally the same way, or using the same technology) at much less cost. The charge of profligacy suggests unnecessary and/or overpaid faculty and staff, unnecessary capital expenditures, insufficient cost controls, and the like.
2. Wrong Priorities: the charge that while cost increases may (or may not) be justified, or at least explainable, for what colleges and universities are doing, the point is that they are doing too many unimportant or low priority things. The faculty may be busy doing research that is of no interest nor foreseeable consequence to anyone, even to other scholars. Or there may be academic programs, however well-taught, that have few or no students and/or no evidence of actual learning; or a student affairs staff, also hard-working, but with no enthusiastic participants nor evidence of "student development."
3. Timidity, or the Reluctance to Radically Restructure: the charge that there are altogether new (and ultimately less costly) ways of doing things that may require radical alterations of the production process itself ("restructuring"), but that could gain substantial efficiencies if the management were only bolder or more visionary or more forceful in effecting these radical changes.
4. Insensitivity to the Student Consumer: the charge that, while the costs (and especially the cost increases) may be justified or explainable, colleges and universities have not made the unusual sacrifices called for by the vulnerability of some of their students (especially those most likely to be dissuaded by tuition increases) and the high stakes of economic and social justice.
5. Overselling, or Overenrolling: the charge that we have oversold our product: that we are admitting and teaching too many "marginal" students—at public expense and with predictably low odds of success.

In Defense of the Academy’s Costs and Prices

Like any multifaceted indictment, there are bits of truth in all of these charges. But overall, the charge that higher educational costs are "out of control," or that tuitions do not reflect value received, is overwrought and mainly wrong. Each of the charges listed above can and should be answered—not to everyone’s satisfaction, but in defense of the academy, which has taken more criticism on costs than it deserves.

Are we profligate or wasteful? For example, the most general charge is that of profligacy, or wastefulness. The most common defense against this charge is to explain just why things in higher education are so expensive and/or why it is so much more difficult (that in other sectors) to economize due to our general "productivity immunity" or "cost disease." However, a better defense may be simply to dispute the initial observation. As shown in Table 2, the underlying per-student cost, or rate of increase thereof, where it matters—that is, where these costs are legitimately a public policy issue, in the tax-supported public sector—are neither "excessive" in themselves, nor increasing at excessive rates.

Where most undergraduates are taught—in public community colleges, public comprehensive colleges and universities, and in regional private colleges and universities—salaries have generally lagged behind the general economy, and the ratios of full-time faculty and staff per student in many states have declined (a demonstration of clear cost-side productivity improvement). In the private, well-endowed, "pricier" college and universities, which are much costlier than their public counterparts to begin with, and becoming increasingly so, there is simply not a legitimate public policy issue as to what their cost or pricing structures should be.

In the public research and doctoral universities, there are undoubtedly pockets of less productive faculty and administrative staff who are working hard at organizational maintenance and at solving very small problems. But this observation yields few specific managerial actions that would demonstrably (and usefully) increase productivity and save public resources. And in these public research and doctoral campuses, it is also worth noting that:

• Any reversal of the "drift" of campuses toward the higher-cost end of the per-student cost continuum would almost certainly be bitterly opposed, most of all by governors and legislatures.
• Costs have been lowered substantially already (many would say excessively) through widespread substitution of cheaper part-time and adjunct for full-time faculty.

• Alternative revenues from tuition, fees, research overhead, and aggressive fund-raising have already replaced tax support in many public institutions.

• Public universities have been pursuing standard industry practices such as early retirement, contracting out, decentralized budgeting, electronic transactions and records, on-line and widely-shared libraries, and aggressive and innovative marketing for decades (and will continue to do so).

A similar and more substantial explanation for some high costs in some public systems is rigid state finance laws, which exist more to inhibit corruption or outright stealing than to encourage good business practices. For example, as long as state treasurers or comptrollers "sweep" college and university accounts at the end of a fiscal year, returning unspent balances to the state treasury, public institutions will do everything in their power not to save, but to spend the money before the end of the year, even to the point of holding excess inventories or making low priority expenditures, in the perfectly rational and even businesslike effort to avoid signaling that they were overfunded to begin with (See Johnstone, 1991). Similarly, public colleges and universities in states with executive line item budget control may well overspend on some expenditure categories relative to others simply because that is the way the state finance law is written and the budget is passed--and the state budget office is not about to delegate to the campuses the "textbook" optimizing authority to shift expenditures among categories until the benefits per marginal dollar are equalized among categories. Finally, some states may well overspend on wages and benefits relative to the local labor market because the collective bargaining is done by the governor, with the faculty and staff as employees of the state rather than of the public college or university. The institution is then stuck with a compensation agreement to which neither the chief executive officer nor the trustees of the state university were a party. This line of defense does not override the observation that these practices can be wasteful and sometimes profligate. But it ought to blunt the notion of higher education's managerial culpability in the waste.

One of the single most common elements of this profligacy charge is insufficient faculty productivity, generally meaning insufficient numbers either of students or courses (or both) per faculty. However, in response to this charge, we must first note that it would have validity, if anywhere, almost exclusively at the research and doctoral universities, where faculty have low teaching loads for the express purpose of supporting the dominant institutional mission of scholarly productivity, which in turn is made possible by holding the teaching time to (at best) 40 percent of faculty effort or workload--generally about two formal courses per term, plus undergraduate, graduate, and post-doctoral student advising and mentoring. It may be the case that we have more research and doctoral universities than we need, although in so far as this is a public policy issue, this "institutional drift" has only occurred with public state gubernatorial and legislative concurrence, and oftentimes at their initiative. But this is much less a case of an inefficient or unproductive or excessively costly institutions as it is a case of (arguably) inappropriate missions assigned to some public universities. Finally, it is appropriate once again to observe that most undergraduate students are being taught in community colleges, small regional private colleges, and public comprehensive colleges (sometimes called "universities") where the faculty effort, if anything, is too heavily tilted toward teaching, with insufficient time available for reading and scholarship.

Still, if there were to be any amelioration of this problem (regardless of its magnitude) of insufficient faculty productivity in doctoral and research universities, it would have to be along one or both of two lines. First, some of the least scholarly research or doctoral public universities would have to be closed or converted into comprehensive colleges, with faculty efforts and workloads altered to bring them into accord with the heavier teaching expectations of the public comprehensive colleges. Whether this would ever be legally, contractually, or politically feasible (which is highly unlikely), the result wold be not so much a less costly institution, much less a more productive institution, but merely a different institution--and one that is likely to be filled with disgruntled faculty trained, hired, and, initially rewarded mainly to be scholars, and now expected mainly to teach undergraduates.

Second, the research and doctoral universities could do a better (tougher?) job of holding faculty accountable for the research and scholarly parts of their jobs, imposing heavier teaching obligations on those who, for whatever reason, have become unproductive in their research. Some faculty would surely protest that such a policy would, or at least could, stifle academic freedom or be carried out with other inappropriate managerial agendas--all of which are valid concerns. More limiting, however, on the capacity of such a policy to substantially enhance higher educational productivity is the likelihood that the volume of good teaching that could be squeezed out of faculty whose research productivity had demonstrably lapsed is almost certainly minimal. (There is also the bothersome asymmetry of such a policy that purports to increase the amount of teaching demanded from the faculty member whose research is deemed insufficient, but no similar determination to increase the research expectations of the faculty member who is an uninspiring or otherwise less than competent teacher.)

Actually, the popular assumption that research universities are expensive places to teach undergraduates may be less true than conventionally believed. Research universities have devised ways to hold down the costs of teaching the undergraduate—that is, ways that seemingly enhance productivity—which happen to be the very devices that the same critical public frequently castigates them for: e.g. large lectures with graduate assistant recitation sections, or large scale reliance on adjunct professors for introductory classes. Actually, insofar as there is appropriate criticism at these universities of the underlying unit costs, it is more validly a criticism of the extent of cross subsidization (of the graduate teaching and the underlying scholarly missions by the undergraduate) and of the inappropriate recruitment and/or placement of undergraduate students in research university settings where they would be better served elsewhere. These may be lapses in effective management; but they are not manifestations of unproductive faculty.

A very different defense is appropriate to the so-called "high end" providers: those private colleges and universities marked by high costs, high tuitions, substantial institutionally-provided financial aid, large applicant pools, and considerable selectivity (for example, the colleges and universities making up the Consortium for the Financing of Higher Education [COFHE], and described by Clotfelter, 1996). This defense is the simple test of the market—that preeminent signal of "worth" in our economy. Yes, these high-price (and even more, high cost) colleges and universities have more faculty, teaching fewer students, with greater support and more physical amenities than seems absolutely necessary to process a given number of students. For all their implicit per-student subsidy via their large endowments, they may still charge more than some families are willing to pay (although a considerable portion of that "cost," as earlier noted, is for room, board, books, entertainment, and other living costs that most of these students would be enjoying anyway). But the major defense is that these families, with plenty of good quality, lower cost alternatives, are lining up to make these sacrifices--including the assumption of substantial student debt--because they believe the expense to be worth it. And because there are no public dollars going into this choice (other than the need-based financial aid, most or all of which the students would be entitled to even at an equivalent public college or university alternative), there would seem to be no reason for assuming either the underlying unit costs, or the tuitions (pricey though they may be) to be a valid public policy issue.

Do we expend resources for the wrong things? A slightly (but substantively) different charge than spending wastefully is spending on the wrong things, or the wrong priorities. This can occur in the allocation (or the alleged misallocation) of resources and efforts among the legitimately multiple products of the university--e.g. scholarship, applied versus basic scholarship, teaching (or more accurately, learning), service, service to the community versus service to the discipline, or even service to private causes. Of course, multiple products are not unique to the university. Nor are the other complications such as cross subsidization, or simultaneous production of these different "products." What is unique--and what invites the constant barrage of charges of wrong priorities--is the absence of a common, undisputed, easy-to-measure, and unambiguous metric such as contribution to profit. A business only has to apply the single metric of profit to each of its products. A university cannot do this, not because it does not want to or know how to, but because it cannot be done. Of course it is possible, albeit exceedingly difficult and probably always contestable, to compare the worth or value of advances in historical scholarship, with the development of a new method of business accounting, with a certain output of baccalaureate graduates, with the advancement of basic science that might lead to application, with the learning added that may be imparted to graduating some at-risk young adults. But it is only possible with something called academic judgement, not with some clear and unambiguous common denominator like dollars.

The more serious criticism in the genre of wrong priorities is not the priority given one acknowledged product (say, research) over another (such as teaching or learning), however disputed these priorities may be. Rather, it is when resources and attention are expended for what are not end products at all, but rather for are clearly only intermediary products such as organizational maintenance or stability, or for solutions to non-problems, or for the mere aggrandizement of the organization itself (or worse, of an individual) with no product enhancement. This may be the most valid criticism of college and university management and of excessive costs.

Are we too timid to reallocate radically. Underlying the charge of timidity is the notion that universities have been managed too much for the benefit and comfort of the faculty and administration, unlike businesses that are, at least in theory, managed for the stockholders, and that (if they are truly successful) do not hesitate to lay off long-time workers, close a factory, move across the Mexican border, or drop and add entire product lines in order to enhance revenue and lower costs.

The criticism of timidity also has some validity. Many (by no means all) presidents, provosts, and deans are sensitive to, and solicitous of, their faculty in ways that have no counterpart in business or even most other public agencies. This "sensitivity"—correlated with a genuinely influential role of the faculty—is not typical of all colleges and universities. Rather, there is a continuum of "authority sharing," ranging from an authoritarian end, where faculty senates are non-existent or at least non-functional (although there are frequently strong faculty unions) and where the president controls all decision and directs all organizational (including faculty) behavior, to a "collegial" or even "deferential" end, where faculty have very great influence, and even authority, over not only the curriculum and matters of faculty membership (i.e., appointments and promotions), but even over the definition and direction of faculty work itself. Proximity to the authoritarian end of this continuum correlates quite directly with low per-student instructional cost; that is, the lower the cost of production (which implies a lean staff, generally low pay, and extensive reliance on part-time and adjunct faculty), the more authority tends to be held by the president and management—and in general the lower the prestige of the faculty and the selectivity of the undergraduate student body. Conversely, the more deference to the faculty, not simply on matters of faculty membership and curriculum, but over the mission and image of the institution and the internal allocation of resources, the higher tend to be the per-students costs—and also the greater the faculty and institutional prestige and the selectivity of the student body.

However—and this point is critical—it is not that administrative deference to the faculty causes the higher costs (and tuitions). Rather, it is the abundance of revenue--from endowments, current giving, research overhead, and a strong student market position--that affords the institution the luxury of strong collegial faculty governance and the ability to be deliberative about (or reject altogether) radical change. Conversely, it tends to be the college that is under-endowed, reliant on part-time faculty, unable to be selective in admissions, and dependent upon an ever-changing "market niche" that generally cannot afford the additional time and occasional wrong decisions associated with shared decision making. In this construction, what may appear to a trustee or a politician or a businessman or businesswoman to be administrative timidity is more a purposeful choice of that governing style most associated with the most prestigious and generally most "successful" colleges and universities. It is clearly not a governing style conducive to abruptly changing institutional mission or to forcing a change in the productive behavior of the faculty. But most colleges and universities do not need abrupt alterations in mission. Nor can top faculty be attracted to places where presidents and deans and trustees are trying to direct professional behavior—especially under the rubric of "making them more productive."

This is not to say that many administrators (especially deans and department chairs) of prestigious colleges and universities could not be a great deal more effective in their management roles, at least in part by becoming more decisive and even more forceful. Nor is it to claim that some colleges and universities have not suffered, both financially and academically, from presidents who became captive to, rather than leaders of, their faculty. But as a general rule, colleges and universities are "managed" with about as much forcefulness, decisiveness, and even authority—but no more--as the nature of the institution, its faculty, and most of all its mission, need at the time.

This defense may beg the question about the alleged need for radical change. For example, the charge of "timidity" sometimes alleges that most universities are far "behind the wave" of instructional technologies, refusing to recognize that the lecture and even the "seated course" may be mainly obsolete, and that much instruction can take place via the internet, through e-mail, or over fiber. Consultants, pundits, and journalists making such charges tend to be enamored with the "Phoenix Universities" and all other institutions promising to deliver instruction via instructional television, the Internet, or other technologically-aided, essentially self-paced, means. In an earlier published prediction about "patterns of finance" in the future, the author (Johnstone, 1998, p. 252).wrote:

Are we insensitive to the financial difficulties of our most needy students (or potential students)? Clearly, higher education, at least as we have become used to it, is a costly enterprise, both in of itself (i.e. the production cost) and its price, or tuition, whether or not one wishes to press charges that it is too costly. Just as clearly, it is possible for most institutions of higher education to provide instruction (ignoring, for a moment, scholarship and other outputs that are legitimate and important products of many institutions)) at less cost per-student, and also, if necessary, to price this instructional product at even less net tuition. It is at least intuitively likely that there are some, and perhaps many, students who could profit from higher education (and from whose higher education society would also profit) who are dissuaded from college in part because of this expense (tuition less aid), even if other factors, such as poor academic preparation and low interest, also contribute to their failure to pursue a higher education. We also know that these "dissuaded" students are disproportionately from low income, African-American, Latino, and Native American families, and are older, and even drop outs from high school. And finally, we know that without at least some higher education, the chances of middle class opportunities are very greatly diminished.

The critical question to this line of inquiry is whether this disproportionality is so great and so unjust that its diminution—that is, an increase in college participation among these hitherto underserved populations—must supercede other criteria for the allocation of revenue within higher education, including such conventional criteria as the quality of faculty scholarship and the preferences of the conventional entering students. The "waste" of higher educational resources under this construct is an extreme case of misplaced priorities, in which some would claim that most expenditures (at least in publicly supported higher education) can be considered "wasteful" until the grossly unequal participation rates have been more nearly equalized-- at least to the limit of what can be remedied with the reallocation of public resources. The remedy would feature very substantial increases in financial aid. These could be paid for, if necessary, by substantial cuts elsewhere in the institution—in this case not to appease budget cutters or to meet some ephemeral standard of "efficiency" or "productivity," but to attain this new priority, which is the more nearly equal participation by socioeconomic class, at least to the limit of what can be secured with financial aid. Or, the necessary and substantial increases in need-based financial assistance could be realized from very high tuition increases to upper middle and upper socioeconomic class and the introduction of a policy of "high tuition-high aid."

However, "high tuition-high aid" has serious practical and political liabilities (Johnstone, 1999a)--for example, when governors and legislators like the part about "high tuition," but less so the part about "high aid." Also, we know rather little about the enrollment behavior of this "marginal student"—that is, the student for whom the decision to go to college, and where to go, and whether to persist is truly an open decision, particularly susceptible to variations in tuition and financial aid. Clearly, the need for a very major increase in need-based financial assistance (or even a rollback in some tuitions) is not what most of the conventional critics have in mind when they speak and write of "waste" and "out-of-control costs" in higher education. And just as clearly, the brightest and most highly motivated students--especially if they are from and affluent families--are going to continue to go to the most selective college; and greater equality will assuredly not be served if only the public colleges foreswear all other traditional funding priorities in order to pour maximum resources into additional financial aid for the poor and the ambivalent. A tentative answer to the "insensitivity" charge, then, is that the issue, however profoundly important, is probably not one that can be solved by shifts in higher education's spending priorities.

Are we overselling our product? "Overselling" as a construct of excessive cost, or waste, signals a number of practices, all suggesting to the critics not so much excessive spending per student, but excessive numbers of students. For example, some US colleges and universities accept students for university, or baccalaureate, studies (including those accepted into two-year "transfer" programs), who would be deemed academically unacceptable for what could be called "university studies" almost anywhere else in the world. They are accepted for baccalaureate study in the US in spite of the fact that they have not yet mastered the learning expected of the graduate of an academic secondary school. Part of the alleged "waste," therefore, is the considerable need for remediation in US colleges and universities--seen by critics of the practice as "paying for the same education twice."

Another part of alleged "waste" (again, true mainly of the non-selective college) is the high drop out, or non-completion, rate. The British use the term "wastage" for "dropping out," implying that obtaining less than higher education's first degree is a waste of time and money--for the student as well as the taxpayer. And even for those who ultimately derive benefit from their higher educational study, the prolongation of the time-to-degree--frequently accompanied by excessive number of credits-to-the-degree--is considered by some critics to be a waste of time and resources.

Furthermore (or so it is alleged), some of these marginal students are encouraged to take--again, at taxpayer expense--more higher education than is likely to benefit either them or the larger society. Thus, students for whom a two-year degree may be a "stretch", albeit an appropriate one, are told that they ought to seek a bachelors degree; those who finish (if barely) the bachelors degree are told that they ought to pursue a masters. And so it goes until American universities are producing, at public expense, far more Ph.D. degrees than is appropriate either for the students, the disciplines, or the taxpayer paying the bill. And although this "overselling" may done under the noble banners of "opportunity" or "equality," the real interest of the academy is said to be in our own jobs and in the revenue these students bring with them in the form of public funds and/or tuition.

Portions of this broad charge of "waste" are simply exaggeration. For example, some public systems are denying entry into a senior college to any student in need of remedial work in any core subject. Trustees or governors advocating such a policy may be quite content for these underprepared students to be given remedial instruction, still largely at taxpayer expense, at a community college or in the local school system. But the true "production cost" of remedial instruction--a function mainly of student/teacher ratios and average faculty or teacher compensation--is not necessarily any higher at a senior college or university than at a community college or a high school. In fact, at the level of a senior college or university, the remediation will almost certainly be done with part-time adjunct faculty, or graduate students, or in any event non-tenure track staff, whereas at the high school or community college, it may well be performed by regular teachers at much higher rates of compensation.

Furthermore, it is not clear that a community college or "night school" setting is more conducive to learning than a baccalaureate college or university for students deemed to be "underprepared." Part of the reason that this admittedly marginal student might be underprepared is that he/she was totally unmotivated (or worse) by the social and/or instructional ambiance of the high school. If so, it is likely that the night school will have much the same "feel," as may the nearby community college. Clearly more research is necessary on what institutional setting is more conducive to learning for different kinds of "marginal" or "underprepared" students. But if this student is to be given a second chance (and the case in favor of this seems overwhelming--but is not the topic of this chapter), this "second chance" can arguably be done as or more cost-effectively with the right program in a senior college or a university than in some less collegiate or "university like" setting.

But in the end, the charge that higher education is being "wastefully oversold"—in effect, overenrolled--can only be answered by placing a value on the very high level of accessibility and "second chance" that American higher education, uniquely in the world, provides. And we seem to have settled that issue. Particularly as long as "college preparedness" in America is so overwhelmingly effected by the socioeconomic setting of the family, the school, and the neighborhood, American values will demand the second (and third) chance that our extraordinarily accessible colleges, both public and private, provide. Virtually open access to, and second and third chances to succeed at, higher education are indeed costly. But these features may also be among the most cost effective ways of "fixing" at least some of the problems of a society in which: (a) higher education is increasingly important to economic and social opportunity, and (b) traditional preparation for college continues to be so overwhelmingly correlated with socioeconomic class and race/ethnicity.
 
 

Conclusion

All higher education is costly, and it can be expected to continue to increase in unit costs much as any other very labor-intensive service--that is, at rates somewhat in excess of the rate of increase in the costs of living. Higher education's costs can increase at much greater rates if revenues increase commensurately. So can higher education find economies and cut unit costs when revenue falls short. But there is little evidence of "out-of-control" costs, especially in the public sector, where cost-effectiveness is a more legitimate public issue.

Naturally, colleges and universities must be especially vigilant about costs (and admittedly, more so than many have been in the past) because of several features of the enterprise: its labor intensity, its legitimately multiple yet hard-to-measure products, and the essentially professional nature of its principal producers (the faculty), featuring control over their own time and considerable, but highly inefficient, involvement in all decision-making. The relatively new public pressure for attention to productivity and cost-effectiveness is a good thing. However, there is abundant evidence that much or most (but not all) of higher education is both well managed and "lean," particularly for what it is being asked by society to accomplish. A little more thoughtful "defensiveness" on the part of college and university leadership would be welcomed.
 
 

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